Time To Ditch The 3 Fund Portfolio?
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- เผยแพร่เมื่อ 21 ก.ย. 2024
- The 3 fund portfolio is a simple, yet highly effective investment strategy popularized by followers of the investing philosophy of John C. Bogle, the founder of Vanguard Group and a proponent of passive investing. The strategy is designed to provide broad diversification, low fees, and simplicity for investors.
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Here's everything you need to know about a 3 fund portfolio:
1. What is it: The 3 fund portfolio consists of three main index funds:
Total Stock Market Index Fund: This fund typically tracks the performance of a broad stock market index, such as the S&P 500, providing exposure to thousands of U.S. stocks.
Total International Stock Market Index Fund: This fund provides exposure to international stocks outside of the United States, offering diversification across global markets.
Total Bond Market Index Fund: This fund invests in a diversified portfolio of investment-grade bonds, providing stability and income to the portfolio.
2. Asset Allocation: The allocation between the three funds depends on an investor's risk tolerance, investment goals, and time horizon. A common allocation might be:
Total Stock Market: 60%
Total International Stock Market: 20%
Total Bond Market: 20%
However, investors can adjust the allocation based on their preferences.
3. Diversification: By investing in three broad index funds covering domestic stocks, international stocks, and bonds, investors achieve significant diversification across different asset classes and geographic regions.
4. Low Costs: One of the key tenets of this philosophy is minimizing investment costs. Index funds, which are passively managed, typically have lower expense ratios compared to actively managed funds. This helps investors keep more of their returns over the long term.
5. Rebalancing: Periodically rebalancing the portfolio ensures that the asset allocation remains in line with the investor's target allocation. Rebalancing involves selling assets that have performed well and buying assets that have underperformed to bring the portfolio back to its original allocation.
6. Long-Term Focus: The 3 fund portfolio is designed for long-term investing. Rather than trying to time the market or chase short-term returns, investors following this strategy aim to stay invested for the long haul, benefitting from the compounding of returns over time.
7. Tax Efficiency: Index funds tend to be more tax-efficient compared to actively managed funds, as they have lower turnover and generate fewer capital gains distributions. This can be advantageous for investors holding these funds in taxable accounts.
8. Customization: While the 3 fund portfolio provides a simple framework, investors can customize it based on their individual preferences and circumstances. This could include adjusting the asset allocation, incorporating additional asset classes, or considering factors like risk tolerance and investment goals.
Overall, the 3 fund portfolio offers a straightforward and effective approach to investing, emphasizing diversification, low costs, and a long-term perspective. It's particularly well-suited for investors who prefer a hands-off approach to managing their investments while still aiming for solid, market-based returns over time.
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Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money.
I started with a 3 fund portfolio in 2013 and switched to 2 funds in 2020 (when stocks fell sharply and bonds increased). I sold all my bonds and bought the discounted stocks. Ever since then I have been 100% stocks with about 80% U.S. and 20% International. Well here we are nearly 4 years later and I'm thinking of going back to 3 funds because the dynamics of my life have changed.
Time to back down some.
Investing since 98' have seen it all in the market. The best way to invest is low cost total us and ex us markets and stay fully invested no matter what happens in the market.
Thanks for sharing that wisdom 👍🏻
yep, trying to time or guess the market will get a person busted and stressed out. I put mine in the s&p and forget it, in the long run it will make some money. About 15 % I invest in individual companies , hoping to get lucky and even those are long term holds.
I hold VOO, QQQ, VNQ, SCHD, SCHY, and BND. It basically corners every sector and exposes me to the best of everything.
Makes sense. Do you use Vanguard or Schwab? Any pro’s or con’s to having an account at one brokerage and funds from another in your account from a cost standpoint?
I honestly think what’s messing with peoples mindset is these finance TH-camrs that stock pick. They only see the wins not the loses or they just buy the magnificent 7 and thinking they are a genius. I found the Jake Bogel 3 fund portfolio and I’m happy with average returns. Btw I opened a custodial account for my little sister and out her in the three fund portfolio and yes that’s including BND.
Remove the bonds untill your older and this method is the best hands down ❤
I'm retiring in April. Last year I went from about 15 investments to three. Gotta keep things simple because my brain isn't going to get better with age and my wife needs it simple too! Auto-pilot on - enjoy retirement!
I went from 25 funds to 4! Much simpler. My advisor had me in 25 funds. By by advisor!
@@mj1961christian Right on! Keep it simple and diverse!
K.I.S.S = Keep It Simple Stupid.
I opened a ROTH and went with a growth ETF, total US ETF, high yield dividend ETF and real estate ETF. I already have Bond exposure in my 401k so I thought it’d be a waste. So far I’m happy with the results.
Same exact thing with me I have the exact portfolio as you and thought that since I have 10 percent in bonds in my 401k that I wouldn't add them to my Roth
Great video! I do question the international and bond allocations though. Namely, i don't see the point in having ANY bonds until a few years before retirement, at which point loading up on cash/bonds until you have a few years worth of expenses saved up seems to make sense. As for Internstional, has there EVER been a 30-year period where they've outperformed? I kbow there's been 5, 10, and maybe even 20 year periods. But for the average investing timeline of 30 years-plus, can you find a period where international wasn't a drag on a portfolio?
I agree. And I think in some of his past videos he has disclosed he didn't have any bonds yet for the same reason. IF you have a 15+ year horizon, it doesn't seem like it make sense.
Great content as usual. Stay the course fellas…DCAing into retirement
Thanks! Will do!
What a great video, love how you deliver the message. Thank you!
Thanks for the kind words!
In my fidelity roth im investing 75/25 in FXAIX & FTIHX...$500 a month set it and forget it.
Limits are higher than $6,000 since 2023
@@grigorirasputin425 yes 8000 for me I'm 50
@grigorirasputin425 yes $8000 for me
Sticking to a plan is so hard for me. I started out with the 3 fund portfolio then switched to the “new” 3 fund portfolio. Now I’m doing just the 2 fund portfolio (no bonds). I come to TH-cam to watch videos to learn but then get distracted by new investing strategies. I need to stop doing this.
Keep some small money to gamble with, that's what I do.
Just a heads up, at 0:34 you put VGTSX as a Schwab Int'l fund but that is a Vanguard mutual fund. The real one should be SWISX 😄
I keep seeing the "new 3 fund" videos with SCHD and VGT/VUG/QQQ without international holdings. I watch them sometimes out of morbid curiosity like I do flat earth videos.
I get it from a TH-cam clickability perspective because it seems like a novel topic. But unfortunately the whole case for why they say it's a great way to invest going forward falls apart because it's based on past performance. I like your "flat earth" analogy 😂😂
“Professor G” is a joke and just make videos for views and picks the best performing ETFs over the last 5 years. Confirmation bias, recency bias, performance chasing, idiosyncratic risk etc etc.
I thought the Earth was flat?
What's your opinion about all the different videos where they say alot of the top US companies are already connected with international funds anyways? I've seen quite a few different ones saying that.
@@korndawggy1801 it doesn’t make sense tbh. Revenue is not exposure. In order for you to capture the growth of the international markets, you need to own the international funds contributing to those returns.. you won’t get rewarded by the international markets just because you hold Apple Microsoft and Coca-Cola while Indian stocks are popping off..
Think of it in reverse. Most countries stocks do business in the US, so why aren’t US revenues keeping international stocks at the same returns as the US stocks? Because it’s a terrible way to think.
Glad you called out Cathie Woods. I don't get why people hype her so much, she is a terrible financial manager and it did hurt many families.
I've been saying this for years. Got a lot of push back when her fund was performing well...now those people are nowhere to be found 😂.
Even Buffet said he will put his wife in a "Two Fund Portfolio" when he dies....90% equity and 10% bond.
I'm not invested internationally right now. I've replaced that with a Nasdaq fund (QQQM) for a little extra exposure in tech, for the time being.
Thanks for the vids!
90% S&P 500*
I’m doing the same!
You cannot use Warren Buffet as a guide for your own life. His wife is going to inherit more money than is in some of the biggest mutual funds out there. Even if there was a great actively managed fund worth investing in they could not handle an influx of a billion dollars, much less multiple billion dollars. His money has to go into the S&P 500 because it is the only fund that can take that kind of volume.
I was expecting a comparison of the 3 vs 2 fund portfolio.
Inherited from my brother's estate in 2020 the Franklin Income Fund is my bond equivalent since 1948 always yielded more than the 10 year US treasury.
But, But, But - Jarrad - My Neighbors's, Cousin's, Boyfriend swears that HIS way is the best way to Make $$. Human Nature and our tendencies are a powerful force that drives Greed and Fear. Appreciate you trying to re-center folks with your videos.
😂👍🏻
Thanks for your content.
I appreciate your support by watching the videos!
Before watching this video: buying government bonds during the war 1939-1945 was advertised as patriotic things. After the war, it has become a “diversified and balanced portfolio with reduced volatility.”
After watching video: Most people do need financial advisors. Financial advisors keep nervous people invested during “tough” times and “good” times.
One fund here! Retiring in 3 years and all just put in the 2030 fund!
lol I just got into fidelity haven’t started any investing yet but all I see is acronyms and letters. Watched your 5 Fidelity fund video will probably do the ones listed on there and avoid overlap
Thank you another good video
No problem! Thank you for the continued support!
Im planning on keeping HSA my max out-of-pocket in FDRXX and/or other stable money market funds.
The ret will be for retirement, so I'm thinking 36% VTI, 18% VEA, 6% VWO, 15% BND, 5% BNDW, 10% REET, 10% GLDM.
(60% VT, 20% BNDW, 10% REET, 10% GLDM)
Hi! I'm new here and am loving your videos! Very helpful information. I was curious why you aren't holding bonds in your IRA? Thanks!
Jarrad.......A Seneca of our time !!
I appreciate it, but I don't deserve a title like that.
@@JarradMorrow Though you do not deserve that title, you can take it with a smile as you mostly apply many of his principles !!
Single fund portfolio is king. VOO or VTI.
What do you think about Robin hood IRA with 1 percent match?
But you can see why folks debate the international exposure. Pre-1989 it seemed to make sense. Since then it looks to have bettered US find only about 20% of the time.
Yes, I completely understand why people would want to avoid international which is why I specifically said that in the video. But that doesn't change the fact that we have no idea how the next 30 years are going to play out. The whole point of a 3 fund portfolio is to say "hey I have no idea what's going to happen in the future so I'm just going to place my chips on everything and be done with it". If someone still wants to avoid international going forward then I have no issue with that as long as they understand what they're doing and can handle whatever outcome they get.
So what's next? After maxed 401k, HSA, and ROTH IRA, plus a couple of real estate investments already in the mix.
Let's say I got an extra nice sum sitting in a high yield savings account, how best to invest it?
It seems like we've crossed an event horizon with the national debt and that bonds are mathematically programmed to be repaid in lower valued Fiat money. I'm finding it hard to even stomach a 10% allocation to them.
I get it. They're not for everyone. If you can handle the short term fluctuations and stay invested then it might not make sense for you to hold them
Excelent content. What Vanguard bond fund is your choice for the three fund portfolio?
Love the content! On a side note, I've noticed this for a while from video to video, but I can't keep myself from calling it out this time. Has anyone noticed the transitions used by Jarrad have really fast/gradient flickering, like at 4:58? It could be a personal device (or certain GPU accel) thing, but they are near-epileptic IMO 😅
Appreciate the feedback. I just rewinded that point of the video 20 times and I didn't notice anything 😂. I'll check it out again the next time I'm tripping on mushrooms to see if I notice something.
Thank you for this video, it's a really great primer that covers the 3 fund portfolio.
Going a bit beyond the 3-fund portfolio, I am seeing many funds of funds (529 and target retirement at Vanguard/Fidelity) that have added International Bonds Index Funds and sometimes TIPS, in addition to the 3-fund portfolio. I am curious to hear if the hear 3-fund portfolio could become a 4-fund portfolio with international bonds (similar to the international stock held in the 3-fund) for increased diversification. Do you think the extra complication of the international bond fund adds diversification, and if yes, is it worth the added complexity of holding one more fund?
Great video, what's your allocation between the US and the international markets?
Very interesting video.
👍🏻
I’ve parked on M1, with a two-fund of VT (95%) and BNDW (5%) for over a year, and I’ve been pleased.
What say you, @JarraddMorrow?
That's close enough to the 3 fund portfolio so you get my stamp of approval
Love it!!
I have to disagree with you on your perspective here. While fund overlap is an important consideration, SCHD and VOO are trying to accomplish two different things. SCHD has a higher dividend target while VOO is a growth fund. Maybe you want growth and dividend income so I don’t see how that is a problem once you are at a certain age. Disclaimer: I do not hold SCHD in my portfolio but I do hold FXAIX (in my 401k) which tracks the SP500.
Wait what??..lmao..ok😂
Jarrad, I have been investing with my work portfolio 401k fidelity and been investing into a target fund essentially for 15 years 😐. I’m almost 50 and looking at selling it all and going with your 3 fund investment. But through my work 401 I’m actually able to buy US treasury bonds. Would it make sense to take 20% and buy the higher yielding 6 month bonds and continue to reinvest those as they mature as opposed to a bond fund per se? Thank you for these tips and videos they are a huge help for average joes who need investing simplified
Why not 50/50 VT/BNDW? Or 75/25 90/10 VT/BNDW?
I have most if my investments in Betterment, which charges 0.25% bit makes up for it with tax loss harvesting.
My new HSA im investing with Fedality.
Those portfolios are close enough to a 3 fund portfolio so that works 👍🏻
@@JarradMorrow just noticed the 3 fund portfolio includes BND or BNDW to prevent having internal bonds.
A good dividend index fund is an excellent bond substitute if you are not nearing retirement. While they are not as "stable" as bonds, they can be pretty darn close while having more potential to bring in more gains during your earning years. Of course, once you are close to retirement, this strategy might not make the best sense.
True..you can always add more pieces to your 3 fund.. I have Berkshire Hathaway And Amazon..😊😅
@@davidbrooks8809 Hi. What % do you suggest for berkshire?
Another fine video....
Thanks!
This is awesome. I've been waiting for you to enlighten us regarding the recent influx of finance youtubers suggesting the dividend ETF/VOO/growth portfolios. I was on the SCHD train since it outperformed the S&P 500 that one time. I realized I was just chasing after performance rather than staying the course with 3 fund. Fortunately, SCHD did go up and I sold out at a profit to get back in on VTI but unfortunately I missed out on the greater gains from VOO/VTI. Never again.
Luckily someone brought these goofy portfolios to my attention. I don't pay attention to 99% of creators in this space so I'm pretty clueless about it all unless someone tells me about it.
Surprised this didn't show how an example portfolio would have worked 10-20-30 years ago.
It would be great if you did a video on what current retirees should be invested in. Thank you, a Retiree.
Are you a current retiree that has a pension, a couple hundred thousand in cash and over $3 M in your 401K or do you have no pension and $10K in cash and $300K in your 401K? Everybody is too different. Also, there are the tax implications. As Jerrod said, a flat fee analysis is what you need.
VTI or VOO and CD's percentage of split at your risk comfort level.
Jarrad, I am sorry man but that type gf belongs to the streets😂😂😂
What are you saying? Should I kick my current gf to the streets?!?! She said she loves me and promised this time would be different!!! 😂
@@JarradMorrow i am sure she also added that “prior promiscuity is not an indication of future divorce”
😂😅😊
What do you think of VMFXX instead of BND?
So, what percentage of my portfolio should be invested in international stocks?
What do you think of equal weight etfs like RSP, EQAL, QQQE?
Right now I’m looking to invest in SCHG,SWTSX and SWISX. I do like SWPPX but I’m thinking those 3 funds together might be better. SCHD is a good one too. I’m looking for thoughts and suggestions? Thank you.
I like/have SCHG (Large growth), SCHB (Broad U.S. Market), and SCHD (Dividend yield).. I am looking to add some SCHF for International diversification
What is your opinion on the 4 fund portfolio? adding Total International bond etf/index fund?
I looked into the validity of adding a total international bond fund a few years ago and based on all the studies and research I went through it didn't add enough benefit to warrant including it in a diversified portfolio. It definitely made the portfolio more diversified and improved risk adjusted returns, but the benefit was so insignificantly small that it might not be worth it when you account for increased complexity (3 funds vs. 4 funds).
I'm usually really good about documenting my sources so I can cite them when questions like this come up, but unfortunately I didn't do it for this one (go figure 😂🤦🏻♂️). I know this sounds like one of those "trust me bro" statements, but I'm 99.999% sure this is what the studies/research said even though I can't cough up the data to back up my statement.
Serious question-I’m 38, I have most of my investments in my (and my wife’s) Roth IRA, I have an emergency fund so obviously I have no intention or reason to touch my investments until I’m at or close to retirement age. So why should I care about volatility enough to invest in anything beyond the S&P500 at this stage of my life? I understand a 2 or 3 fund portfolio will make more sense as I get closer to tapping into those funds, but right now and for the foreseeable future my only goal is maximum growth. Can you (or anyone) provide a little feedback? Is my line of thinking correct or am I missing something? Thank you!
I agree with you. No need for bonds right now in your retirement accounts...as long as you don't panic sell in down markets.
Never ever invested in an international fund . I said that in the 1990s and I’m saying it now . First off like you were spot on with a dividend ETF , your international fund is still stocks . Additionally American companies are global . There is absolutely no reason to have this fund type as a major fund in anyone’s portfolio. Waste of time and money.
What is the rebalance once a year point, I still have hard time to understand? Do you move around your slices of investment pie?
You prune your flowers to water your weeds.
Can I take my 401k and IRA from my finacial advisor and put in a 3 fund portfolio?
You can ask but probably not it's set up their way
If your 401k is at your place of employment.....no. If ur no longer with the company for the 401k....u can roll it over to a brokerage of your liking and control it yourself. Your IRA can be and should be controlled under you if you wanna do the 3 fund portfolio.
@@hotballz72 it is with my financial advisor. I am self employed.
Your chart had an error.. SWISX
3 funds:
VOO
VXUS
SPAXX instead of bonds etf.. Pays 5%
I thought about using spaxx too over bnd being as if its already one of my core accounts. The yields are pretty much the same smh.
I got rid of International based off of research, watching Warren buffet and Jack Bogles opinions on the matter. So many variables, different currencies, governments, the way those economies are ran, wars, etc. so I’m just doing SCHD, SCHG, SPLG in my Roth IRA. My retirement fund havs S&P 500 fund, growth fund, mid cap and small cap. International funds have like 4 to maybe 5% growth since inception so I’ll pass lol.
You do realize by taking large cap growth (SCHG) and large cap value (SCHD) and investing in both, you essentially are getting large cap blend (SPLG).
Bogles response to international was basically summed up as the French are lazy and the UK isn’t better than America..
You have 100% recency bias. You know international outperformed the US from 1950-1989 and 2000-2008?
@@Jpsantos94 yup and historically it still crushes international in the long run
SCHG and SPLG.. super overlap the only difference is Tesla
Topic for yah-... As aging Gen X er's inherit parents hard work, how to you consolidate many a new opportunities? Person starts late in retirement game?, Can the opportunity pay off by x years?
😏
Enjoy the channel
Nice wit on the girlfriend at the end
What is better: S&P 500 or Total Stock Market Index Fund?
For a 3 fund portfolio, I would lean toward the Total Stock Market Fund since it offers a little more diversification.
Voo better returns and better dividends
You could be my daddy 12:22
On a more serious note, people need to realize that by owning the market, you own both the winners and the losers at the same time. If someone else only picks the winner for that same time period, then yes they have “outperformed” BUT the market isn’t just the US, it’s the global market. Choosing only 1 country for your investing LIFETIME of 30,40,50+ years is insane to bet only on 1 country’s market.
Please don't tell my wife
@@JarradMorrow 🫡😉
Bond funds are trash. All the downside none of the up sode of bonds.
The probability of continuing to do it goes down. False. Not how that works.
If your only investment is the stock market it makes sense to have bonds as a base. But you invest in the stock market for chances on return, not because you demand a fixed return, outside the stock market there are enough possibilities for that and your argument that it is not stocks is not true, as they are traded. Also if you look at the more recent data you see that bonds moved down with the stock market, as such not proving to be the hedge against bear markets. I am nearing retirement and bonds will never be part of my portfolio, i choose to invest in CD or direct lending with real estate collateral, easy 6-7% fixed. My stock portfolio will be 2 fund, one for growth other income (so i don’t have to sell stock to create income)
It’s an option… definitely not the best option. But good luck!
You said something blatantly wrong, and it’s really bothering me. In what since would you be decreasing diversification or increasing risk by having overlap in your funds? This makes no logical sense. I know people say to avoid this for complication sake, but this is the first I’ve heard anyone say anything along these lines, and it’s just objectively wrong. Could you expand on what you mean? I guess maybe I’m missing something…
It actually makes complete logical sense. Fund overlap is when you hold at least two funds that invest in the same stocks. For simplicity sake lets say someone holds VTI (total u.s. stock fund roughly 3,600 stocks) and VOO (S&P 500 fund roughly 500 stocks) at the same time. By holding both those funds at the same time, more of your money is concentrated in those 500 stocks held within both funds. Putting more money into a few stocks does reduce diversification and increase risk.
Why why why would you ever by an internationally fund . It was wrong in the 1990s and wrong today. Most foreign countries are laggards as are their companies. Invest in US companies that are Global ( which is virtually every large US company) . Stop with the international
Investing in international was correct from '75 to '82, '86 to '90, and '04 to '10...the future is unknown. Recency Bias: "a type of cognitive bias that causes us to assume that future events will resemble recent experiences. In other words, it causes us to think that, because certain events happened recently, they are likely to happen again soon."
couple of things. "even the professionals under perform", is that why they drive Mercedes? "no one knows where the market is going" False. Easily proven to be a false statement.
@jarradmarrow it’s 2:25 AM n I’m up watching you video. I’m not sure I’m investing the correct way in my Roth IRA I currently hold SCHD VXUS JEPQ and QQMG your thoughts please as you know I can only max out at $7,000
I guess the first thing I'd need to know is how old are you, what are your investing goals, when are you going to need the money, why did you choose each of those funds individually, and how you expect those funds to work together to help you achieve your investing goal.
I can't really give you my thoughts unless I have all of that info because for my situation that portfolio construction would make no sense...but for someone else it might make sense.
Thanks so much for taking the time to respond. I’m 35 and my goal is to have money in my Roth IRA my goal is to retire between 48-52
Thanks! Love your videos
Thanks for watching!